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February 14, 2013

[Mr. Obama’s reference
to talks about a possible free-trade pact with the European Union was a late
addition to his State of the Union address, according to a senior
administration official, because a working group of the United States and the
European Union had sent recommendations to Washington only on Tuesday that the
two sides were close enough on various issues to pursue talks toward a
comprehensive free-trade agreement, rather than a more limited one.]

A Trans-Atlantic Trade Pact: Analyzing the impact of
a free-trade agreement

between the United States and the European Union.

BERLIN — President
Obama’s call for a free-trade agreement between the United States
and the European
Union has unleashed a wave of optimism on both sides that a
breakthrough can be achieved that would lift trans-Atlantic fortunes, not just
economically but politically.

Experts cited tough economic
times on both sides of the Atlantic and a perceived need among European leaders
for a cause to unify their frayed union as major reasons that an agreement
might be reached now, where past efforts have failed. But an even greater
consideration, they said, was the growing economic might of China.

“There will be an
agreement in the end,” said Claudia Schmucker, head of the globalization and
world economy program at the German Council on Foreign Relations. “This will be
the first time in 20 years where something can happen.”

Proponents hope that a
comprehensive trade agreement will not only raise economic growth, but also
lower prices for European and American consumers and give new impetus to a
relationship that has lacked forward momentum almost since the end of the cold
war. Talks could begin in late May or early June.

Negotiations are not
expected to be easy, with entrenched interests, especially in protected sectors
of the agriculture industry, fighting to maintain their subsidies and
preferences. European consumers have rejected the kinds of genetically
modified crops that are commonplace in the United States but
are known across the Atlantic as Frankenfoods.

Nevertheless, Mr.
Obama’s announcement was applauded by leading politicians and business groups
in Europe, especially here in Germany, and so far the news has not provoked the
instant union opposition in the United States that free-trade talks with
underdeveloped, low-wage countries do.

Trade experts agreed
that several new factors had converged to make an agreement more likely. The
economic stagnation on both sides of the Atlantic has heightened the awareness
that a prod to growth is needed. In a Democratic administration, free-trade
agreements are much easier to reach with higher-wage, unionized countries like
those in Europe that do not spook trade unions. And the cross-pollination
between American and European companies, as in the auto sector, also is
expected to blunt opposition from labor groups.

But China may present
the single most compelling factor. There is an increasing awareness that to
deal with the challenge of China’s rapidly growing economy, Europe and the
United States will have to learn to cooperate better.

“In every trade
negotiation that I know of between Europe and the U.S., China is on their minds
in terms of how can we use trade negotiations to better compete,” said Jeffrey
J. Schott, a senior fellow working on international trade policy at the
Peterson Institute for International Economics in Washington.

While trade deals often
take years to negotiate, a senior Obama administration official said that a
pact is possible in as little as 18 months — before the terms of the current
European commissioners end. Even so, trade experts with experience from
previous rounds say they are acutely aware of how often negotiations begin with
optimism and grand plans and end with intractable fights between vested
interests.

Karel De Gucht, the
European Union’s trade commissioner, said completing a trade pact could take
two years. In an interview, he said that a deal “will have a worldwide impact.”
The talks were “about our place, and by our place I mean the United States and
Europe, within a decade on the world economic scene,” Mr. De Gucht said.

Mr. Obama devoted a
single sentence to the topic in his State of the Union address, but that was what
proponents of a trade deal had been hoping for. His statement set the stage for
talks to remove tariff barriers and regulatory hurdles between the United
States and the European Union, which are already each other’s largest trading
partners.

In his speech on
Tuesday, Mr. Obama called the initiative the Transatlantic Trade and Investment
Partnership, but the idea is an old one, much discussed during the Clinton
administration under the name Tafta, something like a sequel to the Nafta deal.

Mr. Obama’s reference to
talks about a possible free-trade pact with the European Union was a late
addition to his State of the Union address, according to a senior
administration official, because a working group of the United States and the
European Union had sent recommendations to Washington only on Tuesday that the
two sides were close enough on various issues to pursue talks toward a
comprehensive free-trade agreement, rather than a more limited one.

That high-level working
group has spent most of a year discussing whether the talks would cover just
tariff issues, or also regulatory questions on environmental, pharmaceutical
and automobile industry issues. The administration official, who declined to be
identified, said the Europeans, being eager “for anything that looks like a
growth strategy,” seemed “to be ready to take on some of the more difficult
issues” like agriculture.

There had been some
frustration among supporters of a deal that more progress was not being made.
“We’ve had 20 years of failure on these trans-Atlantic initiatives,” Mr. Schott
said, adding, “Before they signed on the dotted line they wanted to make sure
there weren’t any potholes that would trip them up.”

Tariffs on goods
traveling between the United States and Europe are low, averaging about 3
percent, but proponents say that the savings from eliminating duties would
still be significant because the volume of trade is so enormous. Trade in goods
between Europe and the United States totaled $646 billion last year, according
to United States government figures.

On Tuesday, two powerful
American senators on the committee that would consider any draft trade
agreement before it could get a Senate vote, warned that any deal must open
Europe to American farm products.

Max Baucus, Democrat of
Montana, who is chairman of the Senate Finance Committee, and Orrin G. Hatch of
Utah, the highest-ranking Republican on the committee, wrote that a trade deal
presented an “enticing opportunity” in a letter to Ron Kirk, the United States
trade representative. European leaders, including Prime Minister David Cameron
of Britain and Chancellor Angela Merkel of Germany, have been pushing for a
trade deal as a low-cost way of stimulating their struggling economies. The
United States Chamber of Commerce and large companies like General Electric
have also lobbied for an agreement.

Potentially more
important than abolishing tariffs, but also much more complicated, would be a
deal that harmonized regulations on products like food, cars, toys and
pharmaceuticals. Automobile manufacturers would like to see agreement on safety
and emissions standards for cars, reducing or eliminating the need to build
different versions for the American and European markets.

Matthias Wissmann, head
of the German Association of the Automotive Industry, said that harmonizing
safety features would save several hundred dollars per automobile. Mr. De
Gucht, who is expected to lead the talks on the European side, said that a deal
could provide vital leverage over emerging powerhouses like China.

Nicholas Kulish reported from Berlin, and Jackie
Calmes from Washington. James Kanter contributed reporting from Brussels, Jack
Ewing from Frankfurt, and Brian Knowlton from Washington.